Contracts Chapter 3
UCC 2-305 Open Price Term
(1) The parties, if they so intend can conclude c contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if (a) nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. (2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith. (3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price. (4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.
Gap-Filling Process
(Is there really a gap? If so...) 1 - Find parties would have intended to be bound at the time of formation despite the gap. If so, then... 2 - Look for a way to fill in the gap so that the court can provide a remedy: - A gapfiller specific to the parties (what did parties want - recitals, negotiations, course of performance) - Off the rack defaults (UCC, Trade Usage) or hypothetical bargain defaults (what is fair or reasonable, creates the best incentives)
Parol Evidence Rule Analysis
(Make sure that this is a PER situation) 1 - Is the contract a complete or partial integration? - Full Integration --> Don't allow any extrinsic evidence. 100% of the contract terms are found IN THE WRITING! - Partial Integration --> Allow extrinsic evidence as to the unintegrated terms that supplements but not contradicts the contract - Unintegrated --> Allow non-contradictory extrinsic evidence Approaches to determining integration: a) Four Corners: Just look at the writing itself; does it look complete? If so, do not consider extrinsic evidence - Consider the possibility of collateral contract (the agreement was sufficiently independent of the main contract such that it would be the sort of agreement that would not naturally be included in the writing) b) Contextual - Assume the writing is incomplete so look at the extrinsic evidence and apply integration tests 2 - Consistency - Last step if writing is not integrated as to the term at issue. - If the writing is partially integrated, exclude all parol evidence as to integrated terms and permit consistent parol evidence as to unintegrated terms. - The UCC 2-202 majority rule is that the parol term has to be consistent with the whole contract, including considering its purpose - Comment 2: Course of dealing and trade usage are ALWAYS permitted to supplement (but not contradict) and integrated writing because they are considered implied terms of the contract, not parol. In order to exclude trade usage you must carefully negate it in the contract. ** PER is not relevant to course of performance which occurs after the contract is made. COP can help interpret a contract, but otherwise is a term of modification, not parol.
Gap-Filling
- A contract is indefinite if it is missing terms that the court cannot fill in and that gap leaves the court unable to know how to enforce the agreement. - A gapfilling situation is one where the contract has a missing term but the term i one the court can fill in by using a gapfiller. Gap-filling Principles: 1 - Freedom of Contract 2 - Preference for Finding Contracts
Magnuson-Moss Warranty Act
- Applies to sales of consumer products worth $10 or more to consumers for personal use - If seller makes an express written insurance policy-type warranty, then under M-M Act, seller cannot disclaim or modify implied warranties arising under state law. - But seller can limit the duration of implied warranties to the same duration as express warranties. Limits cannot be unconscionable. Limit must be in writing, using clear language, and conspicuous. A consumer is a buyer of consumer goods for personal use. A buyer of consumer products for resale is not a consumer. A consumer product is generally any personal property that is normally used for personal, family, or household purposes. Whether a good is a consumer product requires a factual finding, on a case-by-case basis.
Contextual Interpretation (Most states & always the UCC)
- Assume words are inherently ambiguous so don't rely on analysis only of the contract - Consider extrinsic evidence to decide whether the contract language in question is "reasonably susceptible" to the meaning offered. - If so, decide whether the extrinsic evidence offered supplements but does not contradict the writing. If the extrinsic evidence contradicts STOP. Do not allow it to go to the finder of fact. - If the extrinsic evidence does not contradict, let it go to the finder of fact.
UCC Article 2 Gapfillers
- Default Price or Payment Terms - Default time, place, or manner of delivery - Default risk of loss term - Default implied warranties terms - Default inspection term MAJOR EXCEPTION - QUANTITY. UCC §2-306 does allow gapfilling in output and requirements contracts.
UCC §2-313: Express Warranties by Affirmation, Promise, Description, Sample
- Made by any seller, during the bargain (at or prior to actual contracting), with or without intent. - Promise about a fact, showing a model or sample, giving a description - related to the goods. Easier to establish that an express warranty was made with a sample drawn from the bulk than with the model. - IS THE BASIS OF THE BARGAIN - Probably don't have to point to actual reliance, but the seller needs superior knowledge and the buyer has to know about warranty made. Warranty has to be part of the reason buyer entered into the contract. - Breached when goods do not correspond to the warranty at the time of delivery. Whatever defect that caused something to break later had to have existed at the time of delivery!! - Do not need to say "We are making an express warranty." Just happens when the things above happen. BEWARE OF PUFFERY!!! - Is this a fact? Is it objectively measurable? Does the seller have superior knowledge about it? - More likely to be a warranty if: - Statements are specific - Can be objectively verified or tested - In writing - Buyer is relying on seller's superior knowledge. Cmt. 1: VERY had to disclaim. Can't be a surprise.
UCC §2-314: Implied Warranty; Merchantability; Usage of Trade
- Made only by a seller who is a MERCHANT OF GOODS OF THE KIND - Made at the time of sale - Merchantable means, generally fit for ordinary purpose. See other non-exhaustive meanings in 2-314(2) - Breached when goods are not merchantable at the time of sale. - Use word "Merchantable". If in writing, must be conspicuous.
Parol Evidence Rule Tests
1 - Four Corners Test: Just look at the writing itself; does it look complete? If so, do not consider extrinsic evidence Contextual Tests: - R2K §216(2)(b): Is the term one that might naturally be omitted from the writing? If yes, then finding that it was omitted shows the contract was NOT integrated as to that term. - UCC §2-202, Cmt 3: Would the term certainly have been included in the document? If yes, then include the parol term because it would have been in the writing if the parties wanted it to be part of the contract.
Solving an Interpretation Dispute
1 - Look at the contract itself. The court considers only the evidence within the "four corners" of the writing without looking at any extrinsic evidence to interpret the meaning of the contract. 2 - Look at extrinsic evidence - The court can't tell what the contract means by looking only at the contract and instead must consider evidence outside the contract.
Parol Evidence Rule - Overview
1 - There is a written contract 2 - It is supposedly a final statement of terms 3 - There is a second written or oral agreement 4 - Written or oral agreement is made prior to the K or oral agreement is made at the same time as K 5 - The dispute concerns what the terms of the K are, not what they mean
Interpretation Canons / Maxims
1. Read the contract as a whole, do not read provisions in a vacuum. 2. Contract language should not be interpreted so as to render any provision or term superfluous or meaningless 3. The whole contract should be read to harmonize each provision with the others. 4. When dealing with sophisticated parties, the court gives deference to the language used.
Warranty
A promise that a statement of fact is true. A promise about facts concerning the thing (goods, services, or dwelling) being contracted about. - Can refer to both the guaranty about the nature of goods & for an insurance term. - UCC provisions refer to guaranties about the nature of goods. - Warranties are risk allocation mechanisms - They solve the problem of asymmetric info b/w buyer and seller. - Can be express or implied.
Covenant
A promise to do or refrain from doing something in the future. Promise about an act to be performed.
Contract Interpretation
Ambiguity: For a contract term to be ambiguous the disputed contract term must be fairly or reasonably susceptible to more than one meaning. - Courts must use an objective measure to see this: would a reasonable person in the position of the parties and with their knowledge think that the word could have either of the proposed meanings? - A word whose meaning is otherwise plain does not become ambiguous merely because the parties offer different interpretations
Canons of Construction
Contra Proferentem - Interpret against drafter (usually when there was an identifiable drafter who had more bargaining power). Noscitur a Sociis (Used to interpret the questionable meaning of a doubtful word by the words around it. When a word has multiple meanings, the correct one is the one closest to the meanings of the words around the doubtful word.) & Ejusdem Generis (when a general term is surrounded by specifics, the general term is interpreted to only include terms that are like the specific terms) - The meaning of a word is affected by those around it: Like with like, etc. Espressio Unius - The expression of one thing excludes the others Specific Controls General Favor 1) Enforceability of Contract 2) Public Interest
Gap-Filling Order of Preference
Express Terms ---> Control course of performance ---> Controls Course of Dealing ----> Controls Usage of Trade (Moving from what is specific to the contract out to the most general related evidence).
UCC §2-317 Cumulation and Conflict of Warranties Express or Implied
Express Warranties prevail over Implied Warranties of Merchantability but the Implied Warranty of Fitness for a Particular Purpose Prevails over Express Warranties. "Warranties whether express or implied shall be construed as cumulative, but if such construction is unreasonable the intention of the parties shall determine which warranty is dominant. In ascertaining that intention the following rules apply: (a) Exact or technical specifications displace an inconsistent sample or model or general language description. (b) A sample from an existing bulk displaces inconsistent general language (c) Express warranties displace inconsistent implied warranties.
UCC §2-316(3) Disclaiming Implied Warranties
Provides other ways to disclaim implied warranties (a) "As is" language (b) Inspection invited by seller - Only goes to discoverable defects (c) Course of dealing, course of performance, usage of trade Express Warranty - Hard to disclaim Implied Warranty of Merchantability - Use word "merchantable". If in writing, must be conspicuous. Implied Warranty of Fitness for a Particular Purpose - Must be in writing, Must be conspicuous, do not need magic words.
Four Corners Interpretation
The court will not allow extrinsic evidence to create an ambiguity. 1- Look at the contract as a whole. Within the context of just the contract, is the language at issue ambiguous? - If it is not, stop. DO NOT consider extrinsic evidence. - If so, consider extrinsic evidence. Allow evidence that supplements but does not contradict the contract to go to the finder of fact.
Implied Duty of Good Faith
UCC §1-304 and R2K §205 imply a duty of good faith in the performance and enforcement of all contract. - Neither rule requires negotiation in good faith towards the formation of a contract. - Some states do not imply a duty of good faith in non-UCC contracts. - This is an IMPLIED TERM. If the contract specifies a standard of performance, that overrides the implied duty of good faith. UCC: Honesty in fact & reasonable standards of fair dealing Common Law: (sometimes use UCC rule) - Did the party act in a manner consistent with the purpose of the contract; consistent with the reasonable expectations of the other party under the terms of the contract; and not in bad faith... - By not intentionally providing shoddy performance or failing to perform - By not abusing the discretion allocated to the party under the terms of the contract, or - By not hindering the other party's ability to perform its obligations for instance by failing to cooperate when necessary to that performance.
UCC §2-315 Implied Warranty; Fitness for a Particular Purpose
Warranty that goods will work for a buyer's specific, unusual purpose. - DON'T mix up with ordinary purpose. - Must find all elements: At the time of contracting Seller... 1) Knows or should have known of buyer's particular purpose 2) Knows Buyer is relying 3) Buyer does rely on Seller's skill or judgement Can be made by any seller, but usually by a merchant. Breached if goods are not fit for the particular purpose at the time of sale. To disclaim must be in writing, must be conspicuous. Do not need magic words.
